The Role of Factoring for Financing Small and Medium Enterprises

By L. Klapper. 2005

405 citations recorded by the source corpus.

Around the world, factoring is a growing source of external financing for corporations and small and medium-size enterprises (SMEs). What is unique about factoring is that the credit provided by a lender is explicitly linked to the value of a supplier's accounts receivable and not the supplier's overall creditworthiness. Therefore, factoring allows high-risk suppliers to transfer their credit risk to their high-quality buyers. Factoring may be particularly useful in countries with weak judicial enforcement and imperfect records of upholding seniority claims because receivables are sold, rather than collateralized, and factored receivables are not part of the estate of a bankrupt SME. Empirical tests find that factoring is larger in countries with greater economic development and growth and developed credit information bureaus. In addition, the author finds that creditor rights are not related to factoring. The author also discusses reverse factoring, which is a technology that can mitigate the problem of borrowers' informational opacity in business environments with weak information infrastructures if only receivables from high-quality buyers are factored. She illustrates the case of the Nafin reverse factoring program in Mexico and highlights how the use of electronic channels and a supportive legal and regulatory environment can cut costs and provide greater SME services in emerging markets.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/ec53e3feb6c1a2813a7a165a5f7c3908a229a734

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Citations in the corpus

A more complete conceptual framework for SME finance (2006, background): “…scoring appears to be used on a widespread basis only in a limited number of developed nations (Miller and Rojas 2004).13 The evidence also indicates that access to historical credit information such as business credit bureaus is positively related to the presence of factoring (Klapper 2005).”
Small and medium-size enterprises: Access to finance as a growth constraint (2006, background): “Klapper (2006) illustrates the importance of factoring for firm financing in many developing countries and discusses the example of the Nafin 4 Voordecker (2006) analyzes the relationship between relationship, the legal organization of borrowers, competition and the likelihood of collateral as part…”
Credit Market Disruptions and Liquidity Spillover Effects in the Supply Chain (2020, neutral): “, Mian and Smith (1992) and Klapper (2006). However, over the crisis period, the factoring and trade credit insurance markets dried up.”
A More Complete Conceptual Framework for Financing of Small and Medium Enterprises (2005, background): “…scoring appears to be used on a widespread basis only in a limited number of developed nations (Miller and Rojas 2004).13 The evidence also indicates that access to historical credit information such as business credit bureaus is positively related to the presence of factoring (Klapper 2005).”
Forecasting SMEs' credit risk in supply chain finance with an enhanced hybrid ensemble machine learning approach (2019, background): “Chen and Hu (2008) consider that SCF reduces the mismatch risk of supply and demand in the financial flow and creates value for the supply chain with capital constraints by integrating the FIs, the focal company and capital-constrained firms in the supply chain.”
Financing buyer–supplier dyads: an empirical analysis on financial collaboration in the supply chain (2016, background): “Furthermore, as varying company locations and cultural differences might affect the buyer–supplier relationship (Hofstede, Hofstede, and Minkov 2010) and have an impact on the optimisation potential (Klapper 2006), we also considered the supplier’s locations in our analysis.”
How Inventory Is (Should Be) Financed: Trade Credit in Supply Chains with Demand Uncertainty and Costs of Financial Distress (2013, positive): “accounts receivable (see Mian and Smith Jr. 1992 and Klapper 2006 ), the supplier might sell a”
Does finance solve the supply chain financing problem (2016, methodology): “On the empirical side, Klapper (2006) provides an econometric analysis of the benefit of reverse factoring as a means of financing SMEs, Liebl et al. (2016) provide a clear picture of the objectives and barriers to the adoption of reverse factoring, and finally, Wuttke et al. (2013a) provide a case…”
Cash conversion cycle and corporate performance: Global evidence (2018, background): “M AN US CR IP T AC CE PT ED 17 Klapper (2006) observe that the economic development status influences a business’ accounts receivable by changing the credit policy.”
Scaling-Up SME Access to Financial Services in the Developing World (2010, background): “25 Jeucken (2005) 26 OECD (2006) 27 Klapper (2005) 28 OECD (2006) 19SCALING-UP SME ACCESS TO FINANCIAL SERVICES IN THE DEVELOPING WORLD BOX 3.1 | FIGURE 1 PERCENTAGE OF IDENTIFIED SGB FUNDS INVESTING IN KEY REGIONS Note: N=186, does not include 6 funds with unknown investment regions.”
Digital Finance and FinTech: current research and future research directions (2017, positive): “their creditworthy accounts receivable at a discount (generally equal to interest plus service fees) and receive immediate cash’’ (Klapper 2006). Typically, a complete portfolio of receivables of diverse customers is sold by the original creditor to a socalled factor. Such a mixed portfolio shall di”
Can Supply Chain Finance help mitigate the financial disruption brought by Covid-19? (2021, background): “A large, creditworthy buyer agrees with a financial institution to buy in advance the approved receivables of selected suppliers (Klapper, 2006).”
Managing the Innovation Adoption of Supply Chain Finance-Empirical Evidence From Six European Case Studies (2013, background): “Particularly in Europe, SCF offers some innovative aspects opposed to related practices such as reverse factoring, which are intensively used in emerging economies (Klapper 2006).”